New-Construction or Resale? Understanding the Pros and Cons!

Deciding between…

New-Construction or Resale? Understanding the Pros and Cons associated with New Construction!

When looking to purchase a new home, the question inevitably comes up: new construction or Resale? There are a lot of different things to think about: the appeal of a new, shiny home that’s never been lived in compared with the charm of a previously owned home in an established neighborhood. In Denver suburbs like Erie, Broomfield, Lafayette, and Thornton, you have plenty of options when deciding between new construction or used home.

Here are some things to consider when looking at what kind of house you’ll be purchasing:

Pros of New Construction

Control- You’re in better control of the process. You’ll decide if you want a home with a traditional layout, or more contemporary home with a modern flow and an “open floor plan”.  Finishing touches mean everything, and with a newly built home, you’ll get to personalize everything from the flooring choices and paint, to countertop material and quality of the kitchen appliances.  Even if you’re not building a custom home, most tract homebuilders will still give you a wide variety of options to choose from!

Architecture- Builders make notable advances every 5-Years!  Innovative new architectural features like “his and hers” closets in the master, separated master bathroom sinks, upstairs laundry rooms adjoining the master closet, and convenient bill-paying desks off the kitchen, have all become common in just the last 5 years.  Significant strides are made in home architecture, finishes, appliances, and energy efficiency, every few years.  Buying new, gets you the “state-of-the-art” on every aspect of the home.

Efficiency- Everything in a new home is built to current 2017 energy efficiency standards. Current appliances don’t take as much energy, modern windows also help to keep the house warm in the winter and cool in the summer.  Additionally, modern homes are now meticulously sealed during the construction process, and utilize spray foam insulation that keeps them far more energy efficient than homes that were built just a decade ago in the early 2000’s.

Maintenance Since your home and everything in it is new, most major repairs are still comfortably in the distant future. Warranties on your roof and your appliances can protect you from unexpected costs.  A new home will typically give you close to a decade of worry-free living, before any major issues even begin to arise.

Amenities New developments often come as part of a “master planned community”. Parks, pools, and community spaces will all be built close to homes, schools, and transit. These “master planned communities” are built to accommodate the growth and influx of new residents in a way that is convenient and comfortable.  Many new communities have fitness centers and resort-style pools for the whole family to enjoy.

No Rush Because new builds take an average of 5-6 months, you have time to prepare for your move. Packing can be done over time, you can find the furniture, window coverings, and even plan the placement of each room with plenty of time to spare. Plus, you can take your time selling your current home, which will considerably reduce your stress and afford you the luxury of holding out for the right offer.

No bidding wars- Because new construction lots and homes are released on a “first come, first serve basis,” you won’t be subjected to the bidding wars, and appraisal issues that often plague the buyers of re-sale homes. *However, popular developments may have a waiting list for the most desirable lots, so there are still no guarantees that you’ll get your first pick of lot placement.

Reduced closing costs-  Builders routinely offer incentives that can be used to partially offset (or completely cover) the closing costs associated with the mortgage.   Many builders offer incentives between $3000-$15,000, that can be used towards closing costs or design center options.  This means that the buyer can purchase a home with far less cash required to close. 

*For example…  a Veteran using a VA loan, is technically required to bring $0 down payment to satisfy the VA underwriting guidelines.  However, the closing costs on a typical $450,000 home run around $10,000.  Normally (on a resale home) the veteran would have to bring $10,000 cash to pay those closing costs.  However, with a $10,000 builder-incentive in place, that veteran can use it to offset the lender’s closing costs, and truly close the VA loan with $0 down (or whatever minimum deposit the builder requires to hold the home).

Cons of New Construction

More Expensive- Just like buying a brand-new car, you will generally pay a premium to be the original owner.  Having the privilege picking the exact finishes you want, and enjoying a few years of worry-free living with a warranty in place, commands a premium.  For instance, new homes in Erie CO (the market I work in) typically go for 5%-10% more than the slightly older re-sale homes in the surrounding neighborhood.  So, if you’re willing to consider the slightly older homes for sale in Erie CO, you will typically pay less and often get more square footage.

Haggling over price- Dealing with the builder’s sales rep can be somewhat like buying a new car, with plenty of haggling over inclusions, incentives, and price.  The process of contracting a home can be even more grueling than buying a new-car, and sometimes takes up to 4 solid hours.  The process of analyzing soil surveys and engineering reports for the lot, deciding on structural upgrades, and carefully reading the builder’s 50-70 page contract, are all extremely taxing.  

Location Some new developments are on the edge of the metro area, where there is still plenty of open land to build on.   This can be temporarily inconvenient for your lifestyle, until shopping, gas stations, restaurants and amenities get built in the new area.  You may have to drive a little further to do your shopping, and your commute to work/school may increase.

Landscaping It will take some time for landscaping to mature, so shade trees and privacy may be harder to come by in your front and back yards.  Not to mention, some builders will not provide back-yard privacy fences, sprinkler systems, or even grass in the yard.  Furthermore, if the home is delivered during the winter months, it may be several months until grass can be planted in the spring.  For dog-owners, this can be especially rough if the dog tracks mud back into the home, every time you let it out to do its business!  Coordinating the sharing of costs to build a back fence with the 3 adjoining neighbors can often be a huge headache as well!  I’ve seen homes 2-4 years old, still missing fencing on one side, because a difficult neighbor refuses to cooperate and/or pitch-in their share. 

Window Coverings-  Most builders do not include blinds or drapes on new homes.  Therefore, you may be looking at $3000-$10,000 to cover the windows, depending upon the grade of blinds, drapes, or plantation shutters you choose.  This is usually crucial to take care of immediately, unless you want your new neighbors gazing into your bedrooms!

Time- New builds take time and if you’re in a hurry, that can be problematic. You can still choose a pre-built “spec home” in a new development, but your floor plan and upgrade options will have already been chosen for you by the builder.   If your lease is up soon, and you have to time a quick move, building new construction from dirt, probably isn’t your best option.

Interest Rate Lock Issues- The time needed to construct the home, can also have major implications for your mortgage loan as well.   Interest rates on mortgage loans, typically cannot be cost-effectively “locked-in” more than 60-90 days in advance of the closing date.  Therefore, if the interest rates start to make significant hikes, the payment may end up being substantially higher than what you initially planned for.   In the worst cases, a large enough rate hike may mean that you no-longer qualify for the payment on the loan.   Imagine waiting 11 months for the home, only to have the lender tell you that you no longer qualify to close on the home loan.  Fortunately, this isn’t a common occurrence, but nevertheless it is a very real possibility.  Ouch!

Peace and Quiet- New developments may still have a few years to go, before the neighborhood is fully completed.   Therefore, prepare yourself for life in a “construction-zone”.  Large trucks, heavy machinery, and the sounds of hammers and power-tools may be a daily fact of life, while the rest of the homes around you are finished up.  

Flat Tires-  Construction zones often have construction debris like metal strapping, nails, and screws, littering the roads.   Flat tires on your vehicles will occur more often than builders like to admit.

Potential for Foundation Settling- In places like Denver CO, expansive soils can sometimes lead to foundation heaving and settling.  This settling can potentially take up to 10 years to run its course.  Builders are required to conduct a soil survey and engineering report on each lot the build on, so that they can build the home with the proper precautions and foundation type to minimize this risk.  However, even the most diligently built homes can potentially suffer from settling issues if the landscaping grade, sump pump, and/or French drain system aren’t properly functioning for some reason.  Because of this, buying new can be slightly riskier than buying a 10yr old home, that has probably already settled all its going to.

Conclusion…

As with any real estate transaction, it’s critical have a knowledgeable, reputable agent in your corner.  Your agent can help you choose a reputable builder, and make sure you see past any “fluffy claims” the various builder’s salespeople make.   It’s been our experience, that if you talk with 10 different builders, all 10 will try to claim their homes are the best!   Out of those ten, a few of them are building much better homes than the others.   An experienced agent will make sure you know the difference between the truly good ones, and the wannabes simply making grand claims!   Some builders cut corners, and use cheaper materials or construction techniques.  Hakimi Team agents are well-trained on these things, and we can expertly guide you!  In fact, you can download our Ultimate Builder Questionnaire here for free! 

You should ALWAYS exercise your right to bring an agent to represent you!  Make no mistake… the builder’s sales reps are working in the builder’s best interests, not yours!    An experienced agent will almost always get you far better terms and pricing, than you would have gotten by approaching the builder on your own!   Out team negotiates and reads builder contracts every day for a living.  We understand how to push-back on the builder’s rep, and get our clients every penny of discounts, every upgrade, and all the hidden incentives the builder has at their disposal to offer. 

Contrary to popular misperception, having an agent represent you does not mean you will end up paying more for the home.  In fact, a community sales manager from the popular builder, Toll Brothers, recently informed us that their budget for paying agents, is not tied directly to the price of each home!    She explained that almost all tract builders allocate a separate yearly fund for compensating the agents.  She went on to emphasize, that because builders depend so heavily on agents to bring them buyers, it would be a HUGE conflict of interest, for them to offer lower pricing to the buyers who approach them without an agent.  She made it very clear, that the last thing any builder wants to do, is alienate all the agents that play such a crucial role in helping them sell out their communities! 

If you’re interested in buying a new home, or if you just have any questions, we’d love to talk with you!   Give us call at 720-370-3000!

David Hakimi’s article “The Rookie Agent’s Guide to Selling NewConstruction” was recently published on the National Association of Realtors YP-Lounge blog, and was a featured article on Realtor.com.  David Hakimi literally “wrote the book” on helping clients buy new construction!